In the case of a share-based loan, you mortgage shares as collateral against the repayment of the loan. Typically, you don`t make payments until the loan matures in two or three years and all dividends paid on the shares are paid to the interest and principal of the loan. In addition to transferring your shares to the lender, you sign a loan agreement that confirms that you are mortgaging the shares as collateral for the loan. In most cases, shares are not held as quotas. Instead, the shares are available in electronic form, called “book registration” in brokerage jargon. To assign your accounting titles, the lender provides transfer instructions. It`s a good idea to call your broker to ask for procedures on their end. The loan agreement and share transfer form should be enough to transfer the shares from your brokerage account to that of the lender, where the shares are held until you repay the loan. The transfer of shares should include what is called a medallion signature guarantee, which will be concluded when the transfer form is signed. You can get the medallion guarantee from a broker or bank where you have an established relationship. The medallion guarantee is not the same as a notarized signature, so make sure you have your signature properly verified on the stock allocation form. According to the Financial Industry Regulatory Authority`s website, equity-backed loan offerings come from a large number of financial advisors, including brokers, insurance agents, accountants and lawyers.
An error on the back of a share certificate causes significant problems.